Q2 2021 Citi Trends Inc Earnings Call

August 24, 2021

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Ladies and gentlemen, please standby the conference will begin momentarily. We thank you for your patience and I ask that you. Please remain on the line.

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Greetings and welcome to the Citi trends talk to <unk> 21 earnings conference call. During the presentation. All participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the floor.

On your telephone.

Any time during the conference you need to reach an operator. Please press star Zero as a reminder, this conference is being recorded Tuesday August 'twenty four 2021 I would now like to turn the conference over to Nitza Mckee Senior Associate. Please go ahead.

Thank you Malika and good morning, everyone. Thank you for joining us on Citi trends second quarter 2021 earnings call on our call today is our Chief Executive Officer, David Mcewen, Chief Financial Officer, Pam Edwards, and Vice President Finance, Jason Marschner. Our earnings release was sent out this morning at 645, a M eastern time.

If you have not received a copy of the release, it's available on the company's website under the Investor Relations section at Www Dot Citi trends Dot Com you should be aware that prepared remarks today made during this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 management may make additional forward looking.

In response to your questions. These statements do not guarantee future performance and therefore, you should not place undue reliance on these statements.

We refer you to the company's most recent report on Form 10-K, and other subsequent filings with the Securities and Exchange Commission for a more detailed discussion of the factors that can cause actual results to differ materially from those described in the forward looking statements I will now turn the call over to our Chief Executive Officer, David Mcewan David.

Thank you Nita.

And thanks for joining us today on our second quarter fiscal 2021 earnings call.

This morning, I will review our continued transformation of our business model.

Our strong financial and operational results for the second quarter.

Discuss our confidence in the business for the remainder of the year.

Now I will update you on our progress related to the evolution of our city Master plan.

Activity in support of our strategic growth initiatives.

In addition, and Edwards.

<unk> will elaborate on our financial results and provide details about our guidance for the remainder of the year.

I would be remiss, if I did not take a moment to once again emphasize my true gratitude to our dedicated teams across our organization.

Our industry has faced many challenges since the pandemic emerged.

Teams have never wavered from their passion and dedication to serve our customers and communities.

Citi trends cultures, becoming stronger everyday and.

And the mood of our culture is our people.

Thank you, especially to our internal teams and vendor partners.

I'm, making Citi trends the sought after brand experience for our loyal and growing African American Latinx families apparel accessories and home lifestyle needs at prices that will never break the bank.

Our journey has just begun.

We have a long runway ahead of us as we gear up to expand the Citi trends experience to so many more communities associates and business partners.

Now, let me discuss the key highlights of our second quarter performance compared to the second quarter of 2019.

Total sales increased positive 29, 8% versus Q2 2019 supported by an increase in comp sales of positive 25, 6% versus Q2 2019.

Our strong top line increase was the result of growth in our average basket size.

Driven by spending as we have seen for the last five quarters from longtime loyalists lapsed comebacks and many new customers. In fact, our customers are in better financial position, which we expect will continue his employment levels rise and the economy continues to improve.

We are once again very encouraged by the broad based strength across our cities or categories.

Factory registered strong double digit growth versus 2019 across five of our six cities, including ladies mens kids beauty and accessories and home lifestyle.

Our buying planning and allocation teams are truly trend masters.

<unk> amazing skills in developing proprietary assortments.

Building relationships with sought after brands and scouring the landscape for great values.

Our momentum points to the underlying improvement and transformation in our base business. When it comes to consistent flow of improved on trend Assortments fresh receipts at excellent values and the evolution of our supply chain capabilities.

Central to our performance and momentum.

Our unwavering confidence in the power of our physical stores and underserved communities that really need us.

Throughout the quarter.

Paid close attention to enhancing our unique specialty value store experience by putting our customers at the center of decision, making tailored to their needs and desires.

As Pam will describe in greater detail, we registered strong results in the middle of the P&L, resulting in significant growth in our gross.

And operating margins as well as continued expense leverage.

Achieved these results despite macro freight and labor headwinds heading into the quarter.

The fact that our operating margin expanded nearly 700 basis points in the second quarter compared to Q2 2019 showcases the diversity and adaptability of our operating model.

Earnings per diluted share of $1.36 far exceeded our beginning of period internal expectations.

This was another well executed high performance quarter for Citi trends and the momentum from Q2 is carried into August with the great start to our back to school and back to dorm seasons.

As we look forward to the remainder of 2021 I am pleased to report that based on our strong first half performance. The momentum we're seeing in the third quarter and confidence in our ability to capitalize on the opportunities that lie ahead, we have increased our full year total sales and EPS outlook above the high end.

Our previously provided ranges.

Our revised outlook now calls for mid point total sales of $1 billion.

Which will have us reaching our previously shared long range top line target more than a year earlier than planned.

Importantly, the base foundation of our business has improved.

Fueled by improved and expanded.

Trend right Assortments, resulting in higher spend per customer, which we believe is sustainable over time.

The Citi trends transformation.

Clear path for many years, but meaningful growth.

With that I will turn to Pam.

Our CFO, who will provide more details Dan.

Thank you David and good morning, everyone.

David mentioned this was another well executed quarter. We are very pleased with our first half results and the continued momentum we are experiencing thus far in the third quarter.

I'd also like to Echo David's comments in expressing appreciation to our incredible team.

And what has remained the fluid environment, we delivered a stellar first half results and we could not have done so without the hard work and dedication of our associates.

Our accelerated growth rate has challenged our teams, but all have risen to the occasion and have continued to excel in their performance.

As mentioned in the press release the company is reporting operating results for 2021 relative to Q2 2019 to provide a more normalized comparison of performance. Since Q2 of 2020 included significant favorable onetime expense reductions such as furloughs reduced store.

Hours and closures abated rent and other COVID-19 cost credits.

Before I get into the details of the financials. So let me address the topic of supply chain, which is under our move operational pillar between our buy and sell pillars.

As we mentioned on our last call with our outsized performance, we ran into some bottlenecks getting plenty of available product.

D C and into our stores fast enough in Q1 to meet customer demand.

We moved quickly to address those bottlenecks and ramped up our drop ship capabilities to meaningfully expand our ability to move goods to stores.

By tackling the expected supply chain headwinds and implementing strategies to mitigate cost while more efficiently lowering our product I'm pleased to report that our freight costs came in better than we expected in the second quarter.

The availability of high quality goods remains plentiful and our ability to move the goods throughout our network has meaningfully improved positioning us well for the fall and holiday selling season.

Now, let me turn to the review of our results.

Total sales in the second quarter were $237.3 million and increased 29, 8% compared to 2019.

Sales grew 25, 6% on a two year basis.

Growth in the quarter was driven primarily by healthy increase in the average unit retail selling price as well as higher units per transaction, resulting in strong growth in the average basket size.

Sales were consistently strong throughout the quarter.

We achieved gross margin in the quarter of 48% an increase of 350 basis points compared to 37, 3% in the second quarter of 2019.

The increase in our quarterly gross margin rate continued to be primarily the result of strong full price selling and fewer markdowns.

SG&A leveraged 270 basis points versus 2019 to 31, 8%.

Due to strong sales growth and disciplined expense control.

Operating income of $16.4 million compared $2.2 million of operating income in the second quarter of 2019.

Our net income was $12.5 million for the quarter compared to net income of <unk> $4 million in the second quarter of 2019.

Earnings per diluted share was $1.36, compared to three cents per share in the second quarter of 2019.

Turning to inventory compared to the second quarter of 2019.

Total ending inventory decreased 14, 3% on a total.

Total sales increase of 29, 8%.

We experienced improved inventory turns for the second quarter, and our inventory freshness increased to record level.

Lastly, the company repurchased approximately 215000 shares of its common stock at an aggregate cost of approximately $18.9 million in the second quarter.

We ended the quarter with approximately $29 million remaining on the buyback authorization announced on June 2nd 2021.

In addition, today, we announced in our press release that our board of directors has authorized an additional $30 million share repurchase.

Turning to our fiscal 2021 outlook.

We feel great by the momentum in our business, including our strong start to our back to school and back to dorm season as.

As we continue to operate at a high level of growth. We are confident in our ability to capitalize on the opportunities that lie ahead in the second half of the fiscal year.

We are therefore, raising our guidance.

Typically we now expect to generate total sale.

990 million to one point Bill.

Billion.

A midpoint increase of approximately 28% compared to fiscal 2019.

This would result in expected earnings per diluted share in the range of six.

Dollars 30 to $6.50 for a midpoint increase of 354%.

<unk> 2019.

Within this guidance, we expect that our gross margin will be in the high 30 to low 40, consistent with previous guidance.

I will now turn the call back to David for closing comments.

Thanks Pam.

As a result of our accomplishments and momentum we are hard at work evolving our city Master plan.

Plan that will build on what we have shared in the past.

Currently positioning should be trends as a purpose led growth plan.

Vital one stop <unk> shop for underserved African American Latinx communities.

We will provide more specific targets in conjunction with the unveiling of our revised to be Master plan at the ICR conference in January of 2022.

Also we will continue to partner with our board of directors in the process of building out our go forward capital allocation plan and look forward to updating you on our progress.

Rest assured the entire Citi trends leadership team along with each and every city team member.

Full of passion that has the expertise to build our future one brick at a time.

I will now briefly reiterate and update you on our four very active strategic growth initiatives that will drive continued accelerated sales and earnings growth.

As a reminder, they are.

Our number one growing our fleet and expanding our customer base number two optimizing our product mix number three reinvesting in our infrastructure and number four making a difference within the communities we serve.

First up.

Our fleet and expanding our customer base our sites remain on.

On a fleet potential thousands of stores.

70% growth from where we are today.

See a tremendous opportunity to grow to grow both within existing dnas and entering new DNA is over time.

Growth will remain focused on three distinct types of neighborhoods.

American centric neighborhoods melting pot or a mix of African American latinx populations in Latin mix centric.

Key driver of fee growth will be the rollout of our new CTX customer experience in 2022.

As mentioned during our Q1 call. We launched two large stores designed to represent a testing ground that amplifies and takes our intimate specialty value store experience to the next level.

We added two more lab stores during the early portion of Q2.

And after rigorous testing and analysis, we are extremely pleased with our results thus far.

Customer and associate feedback has been outstanding and we look forward to scaling CTX in 2022.

It's so exciting to bring to life, a more compelling ways never before our exclusive trends sought after brands and head to toe looks.

Making it a more special shopping experience for our existing and new customers.

Lastly, we remain on track to approximately opened 30, new stores and 20 Remodels in 2021.

Our forward plan calls for opening at least 100, new stores and remodeling of at least 150 stores.

2021 through 2023, we are confident we can meet and possibly exceed these goals.

Next up.

From the mines and our product mix at the root of our transformation at Citi trends is our constant optimization of the basics fashion trends that allow our customer to show up and be seen while not breaking the bank.

Transformation is anchored on a new contract with six cities or categories with each senior buyer, assuming the role of mayor of their respective city.

Being responsible for bringing that city to light <unk>.

Ongoing product mix optimization speaks to our responsibility to our customers to calibrate existing assortments.

Tailored to their needs, while adding new incremental businesses into our highly fungible store model.

With our unit inventory is down considerably and has presented opportunities to clean up the selling floor move fixtures and free up space to further optimize our offerings to our customers.

Our city mayors are staying close to their respective customers partnering with resourceful vendors.

To provide unique assortments that are on trend.

Utilizing data analytics to test learn and build new opportunities to further grow our sales productivity.

Drive improve inventory returns and maintain healthy gross margins.

Third reinvesting in our infrastructure.

As I have addressed in the past we are keenly focused on utilizing a portion of our free cash flow to strategically reinvest in our infrastructure and systems across our bi.

Move and sell pillars of our operation.

In light of the supply chain challenges mentioned earlier, we are embarking on some investment to improve our move processing capabilities.

We have more good work in front of us.

But we're moving in the right direction.

We're also on track in our planning of investments for our buy and sell pillars.

Grounded in implementing solutions that will leverage powerful data to produce enhanced insights and actions on <unk>.

And that prudent investments in these areas will contribute directly to the continued transformation of our business model.

We'll provide more detailed as this develops.

Lastly, making a difference within the communities we serve.

More than ever our presence.

Our stores serve as an informal neighborhood hub or store managers and team members know customers by name.

Take a genuine interest in not only styling our customers, but also listening to their stores and being part of the fabric of the local culture.

City carriers Council, along with our board of directors are committed to establishing additional footholds in our communities.

As the lens of Gi.

And corporate social responsibility, which includes ESG.

A great example of how we made a difference during Q2.

Through our first annual Black history makers program to honor Black entrepreneur, who are making an impact in their communities. We announced the winners of 10.5000 dollar grants on June 16th coupled with the launch of our city care small business Academy in collaboration with <unk>, a leading national law firm.

Together, we are offering valuable curriculum to help all applicants and our black history makers program.

We're going to meet the winners are as exciting as it was inspirational.

It's our hope that these grants will support them in pursuing their dreams and aspirations. We look forward to sharing more with you in the months in the months ahead as we seek to celebrate inactivate the legacy.

Our diverse and inclusive team and culture.

This was another well executed quarter for Citi trends, our transformation remains well underway and our updated guidance is a clear indication that we are confident in the momentum we are seeing the business as well as our outlook for the balance of the year.

We remain committed to expanding the Citi trends brand reach and see a long runway of profitable growth ahead of us as we look to continue to fuel market share gains and build shareholder value over time.

I will end with a shout out to our employees and leadership team for their hard work.

And unwavering dedication to all things city.

We are thankful for our loyal and customer.

Our loyal and growing customer base, we will continue to mask up in stores and take great care in prioritizing the health and safety of our associates and customers.

For joining us today.

We really appreciate your interest in this exciting close stores.

We are now ready to take your questions.

Thank you, ladies and gentlemen on the phone lines. If you would like to register a question. Please press. The one followed by the four on your telephone you will hear a three ton pump technology request. If your question has been answered and you would like to withdraw your to gestation. Please press. The one followed by three once again, ladies and.

It is one four if you have a question.

Our first question is from the line of Chuck Grom with Gordon Haskett. Please go ahead. Your line is open.

Hey, guys. Good morning, nice results here.

Well, David bigger picture your sales per square foot the share going to be around 50 Bucks. If you hit the $1 billion in sales target that you outlined today, which is obviously great improvement from 2020, but it's still below a lot of your peers.

Your off price peers in particular.

When you think about the model and the opportunity on this but I'm. Just wondering if you could help us think about where you think that sales per square foot can grow over the coming years.

Hey, Chuck Thanks, a lot for the kind words and good question sure. Let me, let me take a stab at it.

With our average sales per store has grown considerably versus 2019 up from about roughly one Florida just side, we'll do a kind of a $1 seven number for fiscal 2021.

That points to the improved sales per square foot relative to our model, where we plan on kind of pushing is how do we get the most productivity out of each box and so I think relative to how we price our goods at a value price and the velocity of units that goes through our box, we anticipate going north.

That's a number you quoted.

I think it's all going to come down to in part rolling out our CTX experience that I mentioned, where we've done that in the lab stores its really been our testing ground to.

See how high is high kind of directly related to your question and what we're seeing are some nice lifts not only for the box, but we're learning a lot about the individual cities and based on where they're positioned in the store and how we merchandise them. We're seeing some incredible sales per square foot by city go in the right direction. So over the next.

Few months in remainder of the year were kind of continually tweaking that formula that lab store formula and that's what will begin to rollout next year. So I think as we remodel and open new stores at higher productivity rates.

We'll go north of that number you quoted.

And I think it should be really accretive to the overall business and as you and I have spoken in the past the opportunity to have a lot of flow through from those additional <unk>.

Top line sales and higher sales per square foot is.

Large since we don't have to add a lot of staff to our stores to serve.

Service that additional sales.

Makes sense.

Yeah. It does I guess, it's probably a little too early to get some of that color on CTX I presume in terms of what the lift is or what the productivity is within those handful of stores that you've done so far.

Yes, it's a little early but what I would say is.

Travel and safety withstanding love to show it to you.

Uh huh.

Walk folks through that experience we've got a.

A couple that are reachable in the in the <unk>.

North East couple down South and I think.

I think what we're going to do is just continue to read it in during our Q3 call Q3 call. We'll give you another update.

Okay. That's great and then some of your larger off price peers have spoken about taken retails up over the past week looking ahead to the fourth quarter and into 2022, given some of the supply chain supply chain constraints.

Less promotional activity out there just curious your views on the strategy and if you guys would also look to take prices up in certain areas if need be.

Yeah, It's a good question Chuck.

The highlight there is we remain steadfast that offering the same value that we've always been known for so.

Broad sort of macro context, we are not aggressively raising prices I think.

What we've discovered a little bit in our business over the last six months is if we add more value and quality and it is not like for like goods, we're able to command some higher retails in specific cities and I think that bodes well our customer has shown us that she and he will definitely pay for high quality.

Trend right goods that aren't available anywhere else. So it's less about raising prices in most of the cases, it's actually more about bringing in assortments that are improved and enhanced versus prior years that have been.

Fabrications are better hand, better fits and and we're finding that our customer will will pay a fair value for those goods. So like for like product, we're not raising prices.

But we're definitely continually hunting down rate trends in the right of that right sort of trend value quotient that enables us to charge a fair price and it's helping our our AUR inched upwards, which is which is a good thing contributing towards our higher basket and a higher sales.

That's great.

Last one for me would just be for Pam you talked about how some of the supply chain bottlenecks.

Were pretty significant in the second quarter and it seems.

Like the outlook for the back half is improving a little bit just I don't want to put words in your mouth, but maybe if you could just sort of flush that out for us what's improved what's your outlook on that front. Thanks.

Yeah. Good question Jack.

As we mentioned in the first quarter call.

We saw the headwinds began in the last month of the first quarter and then continue for the rest of the year is the impact in <unk>.

As mentioned on our last call, we had expected that to be pretty significant but we weren't accepting that and we were looking for ways to mitigate that cost.

One of the ways that we were able to jump right on immediately was increasing our drop ship program.

And by ramping that up.

That's not only a place for cost, but a play for speed and with speed the product gets to the stores sooner and it gets to the floor sooner, meaning that customers have access to it immediately to the most recent trends and so that all around has been a win for us not just from a freight headwind.

Perspective.

And we expect that that will continue for the rest of the year as we continue to look at.

Ramping that up even more but also looking at other ways to mitigate the external macro headwinds that we're seeing.

Got it thanks, a lot guys. Good luck.

Thanks Chuck.

Thank you. Our next question is from the line of Dana Telsey with Telsey Advisory Group. Please go ahead. Your line is open.

Congratulations everyone on the terrific performance.

The things that as you think about the complexion of the comp.

The basket do how did the transactions do and did you see anything post the child tax credit as compared to pre.

Yeah. So overall the primary increase in our.

Sales came from the basket size.

So we're seeing a very healthy balance of both.

The AUR and the <unk> increase overall and so from that perspective, we.

That that will continue into the.

The fall is it that's something we've been seeing consistently for the first quarter.

Got it and I think Tim you talked about the freight impact on the gross margin would be around 170 to 190 basis points are you still seeing that or is there any adjustment to that.

Yes, we've certainly seen that moderate and as I mentioned in the answer to Chuck's question.

We were able to claw back some of that in the second quarter based on implementation.

And ramping up of our drop ship program. So absolutely we were seeing the 170 to 190 moderate down we're.

We're not being specific on the exact amount, but it's.

No problem.

Probably I'll say.

<unk> to 70 basis points better than what we expected in the 170 to 190.

Great and then David with the new CTX formats, what are the learnings from that so far and as you continue to remodel stores any adjustments will be that you see being made is it category is it sales associate engagement data that youre getting to enhance your go forward game plan.

Thanks, Dan and thanks for the kind words at the beginning as well yes.

<unk> is showing us some incredible things about the brand.

Couple of them are first off.

The change in the buyer and the general tenor in the store is dramatic.

We start with an entire new entirely new palette of colors, we allow the merchandise to frankly be more front and center against a more muted palette of background colors.

Change the entire floor layout. So it's really kind of a nice play on changing adjacencies, allowing the customer to do a bit more ping pong around the store, meaning they can kind of bounce from an apparel and non apparel item. They can even meet up with an unexpected home item within.

The apparel section.

And so on so it's really I have to tell you a re imagination of the Citi trends store and which resulted as the associates feel really proud to go to work every day they feel.

Powered to put outfits together, because we've created fixtures that.

And frankly make it kind of more fun to put together a top of Nevada and a handbag.

They feel frankly more of an owner in the stores thats been kind of re imagined and so the unexpected surprise I think or maybe greater than we expected was this associate adoption of the experience and then of course as you heard me say on the call. There just such a big a local progress supporter of the <unk>.

You know they are from the community they know people who come through the doors almost every one of them and so they're now so proud to shop. The store. The customer then starts having the cell phone moment and starts calling people. So we're just seeing this great energy come out of it frankly, all the way all the way through to a new music selection.

So it's been really a top to bottom front to back door.

Re imagination of the experience and so as we look forward to the second portion of your question.

Very much a part of our remodel plans I mean theres no question. So as we enter and do deals, which you can imagine we're doing now for 2022 for both new stores and remodeled stores.

Well order and stuff were relaying stores out in order for <unk>.

Figuring out how to roll it out.

It's an exciting time at Citi trends, and so I think thats part of our kind of a momentum comment and confidence comment as we look forward because I think we've got something pretty good here with this re imagine experience.

Got it and then anything for holiday that we should note planning this year as compared to last year in terms of.

And it will be what we should be thinking about.

I think a great question about Q4, one of my favorite seasons.

Can you try and started reinventing how they approached holiday effective with Q4 of 19 and it represented a really good quarter and as you know we had a great quarter last year.

By really amping up the gift quotient within our stores and this year is going to be a bigger and better than ever so I would underline the word gifts.

We are we are gifted so to speak this year for Q4 ready to ready and geared up to have a great joy as festive season, our customers extremely generous in giving in nature to their above average size families and loved ones and we're just thrilled we can't wait for it so.

We're feeling we're feeling good but youll see bright shiny fluffy.

Smell good gifts throughout the front of the store and we'll make sure their associates or are ready to serve them with with.

No doubt no doubt will be a nice influx of.

Holiday shoppers.

Congratulations. Thank you, thanks, Dan and have a great one.

Okay.

Thank you, ladies and gentlemen, once again as a reminder, it is one four if you have a question.

Once again that is one for our next question is from Jeremy Hamblin with Craig Hallum. Please go ahead. Your line is open.

Thanks, and I'll add my congratulations on the impressive performance.

Wanted to see if we could get a little more granular on the gross margins Pam.

Pam you noted about 350 basis points of improvement versus 2019 levels I was hoping that you could put some context around that the component parts in breaking down your product margin improvement.

Occupancy leverage and then maybe offset by how freight compared in Q2 versus 2019.

Sure Hi, Jeremy and thank you for your comments.

No.

We don't include occupancy in our in our gross margin number.

That we're reporting so the the main drivers of the benefit here.

The initial markup the markdown.

And a little bit of shrink offset by.

The freight headwinds that we've talked about.

And so when I look at you know the majority of that I think I think about the lower inventory levels, which are driving lower markdowns and lower shrink number.

And but certainly we are seeing good initial markup.

We continued to increase our AUR.

Just having better trends as David mentioned that product mix overall and seeing that.

They are selling.

Right. So I think overall were.

Those are the main components of the of the gross profit increase.

Okay.

And then I'm, hoping that you might be able to provide a little more granularity around.

Recent trends in terms of whether or not you've seen a positive impact since the child tax credit advance payments.

In mid July have you seen a recent.

Improvement in trends over the last let's call it four weeks.

Any additional color that you might be able to share on that.

Sure I think.

Dave.

You know immediately following the first DTC in July.

We did see an uptick but we will be also.

During that time period, where the later back to school and so when you dissect that the additional.

This is Sam.

Dollars the CTC Mi.

Optimized product mix, notwithstanding it's hard to figure out what what is what in that so.

What I will say it wasn't as material as I think some of the other stimulus programs have been but we certainly did see some uptick.

But hard to dissect exactly what that was worth.

Right and I think the increase snap benefits doesn't start until October one so that that spend right element too.

So I also wanted to understand some of the regional performance.

And I think.

A lot of the growth towards a thousand units.

Gonna come in.

Less developed markets, whether it's California or.

Truly in the northeast as well.

Where it seems like there's some tremendous opportunity I know.

Previously been a little skepticism about how those markets might perform so I was hoping that you could.

Provide a little more color David on.

The markets in the northeast or California.

These are performing.

Overall relative to the Euro base.

Hey, Jeremy good. Thank you good question.

So first off from a new store growth perspective, we are going to in the foreseeable future, let's called it. The next 18 months be focused on both densify current markets as well as entering.

Sparsely or not yet populated by Citi trends store markets to your point, New Jersey deferrals.

The boroughs in New York and start with that would be a sparsely one and in California. We have about six stores that we can grow significantly but the next 18 months will be a mix of intensifying and some new entries in terms of their performance within those more as you pointed out densely populated leaning more towards urban.

Closer rings through a bigger city markets, where.

Are working hard and fast and now what I can share with you is our performance over the last couple of quarters has been fairly outsized to all of our geographies, but what's interesting is the California market, which I can cite better than New York since we don't have a lot of stores in New York is they've come on really really strong and what's really incur.

<unk> about that as a lot of those stores are <unk>.

And nature of those are latinx centric stores.

We've seen an incredible new customer capture in those stores.

I think it's one of those examples Jeremy where and I mentioned this when I first joined the company. There is an incredible brand awareness opportunity with Citi trends, even though we've been around for 75 years 20 years.

Citi trends nameplate.

Theres awareness abound out there to gain in market share to pick up and we're seeing that happening right before our eyes in California, and I think what we're developing is a bit of a template to use as we enter other fertile market places throughout the U S.

Im excited about that.

We are undergoing some some really neat learnings in the markets, where we've launched a lab store for example, and we're seeing the general market actually pick up a little bit around the lab store, which is kind of cool and that to me is a sign of building awareness, which then influences traffic and conversion and away. We go so.

Some good things on the in the tea leaves there does that help.

Yes sure does.

And then last one from my.

For me here is.

You noted your guidance is put you on track for <unk> and kind of that one $7 million range really.

Very impressive.

That includes Q1, where you had some pretty extraordinary results.

Obviously, we're not going to or at least I don't think we're going to have the same type of.

Stimulus money available in Q1 next year.

In terms of.

That $1.7 million AUC Mark would you expect at this point to see that grow.

In 22, now that Youre kind of hitting the three earmarks early in terms of your sales and profitability.

Good insights with your question look I think we looked at it this way Jeremy without referring to any specific 2022 detail, which we're not able to share at this rate as we look at things today.

We as a team and say to ourselves we've got to comp the comp. If you will that's a number one job right. The second thing is that we have really good indicators through surveys that we've done over the last couple of months.

That suggest we recaptured an extraordinary amount of new customers and a bunch of lapsed comebacks people that are formally have traded that have come back to the brand and it's our job.

To maintain their loyalty and visitation rate and purchase rate to our stores and our stores. So I think it comes down to.

Keeping the relationship moving with those folks it's been a really big focus of ours to make sure our store managers and our teams in the field.

Paying attention to the movies that are coming through their doors or folks that haven't seen in a while and it's our job to to keep them in the fold right. So I think that that's that's what we're really focused on is developing as I mentioned in the talk.

Talk today.

Kind of purpose led brand.

Oh, sure and drive to execute really really well here's our belief our belief is if we continue to deliver improved and enhanced on trend assortments at great values, those new customers and lapsed come back customers will stay on the phone.

And that's our job ultimately so.

We'll continue to update you and as I said will bring forth some of the.

Additional details at the January ICR conference, but for the time being we're focused on building right Assortments.

Rolling out that CTX experienced in many many markets through either new store or a remodeled stores and we believe that will mean good things too.

Continue a positive run rate and our average sales per store.

Thanks for the color best wishes.

Thanks, Jeremy have a great day, thank you Sir.

Thank you. Our next question is from the line of John Lawrence with Benchmark. Please go ahead. Your line is open.

Thank you congratulations David.

Thank you John good to hear you.

Yeah. Thanks, just a couple of questions and sort of bigger picture questions.

Some of the previously asked but okay.

Can you go back in when you started and came to Citi trends.

If you looked at the assortment pallet you looked at all of our growth opportunities.

And you've devised in and worked on this assortment that has really generated a lot of sell through for a lot of vendors can you talk a little bit about how that process has changed I mean, we've had the pandemic, but at the end results at the end at the end of the day you made a lot more.

So a lot more vendors and probably before your arrival.

Can you talk about that process and what the pandemic has done to those relationships as you try to.

Sort of convert new vendors.

Onto the floor.

Great question, John about our evolution of our assortment, which one could argue matters. The most right. We our job is to work back from the customer and deliver trends in assortments within all of our cities that resonate with them and and do it in a way that we continue to offer newness and freshness. So.

I would tell you that the journey from last April to now has been really eye opening for our teams. So I'll give a shout out to our bi team.

And Lisa and her team have really done an amazing job at not only strengthening relationships with current vendor partners, but also opening up many many new ones.

And it's been all about really figuring it out.

For example, mayor of the Man City, how can I buy your understand my Guy what does that guidance. We want based on its size is life stage as they age.

Adult.

Millennial parent nonparents all of the above and we really rounded out our.

Our sort of our ecosystem of vendors that can serve all of those different constituencies. In my example, on the Venezuela and we've done that really in all of our cities in the box.

It's been great to watch.

No you got to stay on your toes and keep on moving and never never rest on your laurels and I think we have a.

Humble.

And action oriented team.

Test and learn their way too.

The right solutions for our customers and that's what it's all about so.

As I said in the call thinking our vendor partners is something we do all the time.

We wouldn't be here without them.

And they really are rung the bell.

I think their business and our business has grown.

And we're excited to see it grow in the months and years ahead.

Great. Thanks for that answer.

And when you talk about the cities how much how much different.

As you continue to acquire information and data about this customer.

As a new Jersey store versus a California store in terms of assortment.

It's a good question John in terms of geographical differences.

Today.

I would tell you that.

We won't step off that that pedal at all however, I think the opportunity looking forward is to just continue to deteriorate and and figure out to your point the differences between a Newark.

Newark, New Jersey customer at.

Hawthorne outside of L. A customer and there will be differences of 100% and that's where those as ive showcase a little bit in our previous materials, that's where those three tranches of customers come into play.

Is the store African American centric what percent of the box should be a little tweaks for them is the store a melting pot store same answer how do we treat that for a combo of Latina <unk>, an African American customers and then lastly, the latinx centric store how do we.

Dial it up for their tastes and preferences. So that's something that we're going to evolve to over time as you know we have long festival stores in each of those buckets, but.

Our aim is to continue to make them more productive through the right product assortments delivered their tastes and preferences.

Great. Thanks for the insight.

So good luck.

Thanks, John have a great day.

Thank you and there are no further questions on the phone lines I'll pass it back to our speakers.

Thanks, everybody for tuning in today, we'll see at the next call stays safe and healthy Bye bye.

Thank you, ladies and gentlemen that does conclude today's call. We thank you for your participation and ask that you. Please disconnect your lines have a good day.

Okay.

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Greetings and welcome to the Citi trends talk to Q 'twenty, One earnings conference call. During the presentation, all participants will be in a listen only mode. Afterwards, we will conduct a question and answer session at that time. If you have a question. Please press the one followed by the four on your telephone.

Any time during the conference you need to reach an operator, Please press star zero.

As a reminder, this conference is being recorded Tuesday August 'twenty four 2021 I would now like to turn the conference over to Nitza Mckee Senior Associate. Please go ahead.

Thank you Malika and good morning, everyone. Thank you for joining us on Citi trends second quarter 2021 earnings call on our call today is our Chief Executive Officer, David Mcewen, Chief Financial Officer, Pam Edwards, and Vice President Finance, Jason Moss Shneur. Our earnings release was sent out this morning at 645 a M eastern.

Time, if you have not received a copy of the release, it's available on the company's website under the Investor Relations section at Www Dot Citi trends Dot Com you should be aware that prepared remarks today made during this call may contain forward looking statements within the meaning of the private Securities Litigation Reform Act of 1995 management may make additional forward.

The statements in response to your questions. These statements do not guarantee future performance and therefore, you should not place undue reliance on these statements.

Thank you Nita and good morning.

And thanks for joining us today on our second quarter fiscal 2021 earnings call.

This morning, I will review our continued transformation of our business model highlight our strong financial and operational results for the second quarter.

Discuss our confidence in the business for the remainder of the year.

Now I'll update you on our progress related to the evolution of our city Master plan.

And activity in support of our strategic growth initiatives.

In addition, and Edwards, our CFO will elaborate on our financial results and provide details about our guidance for the remainder of the year.

I would be remiss, if I did not take a moment to once again emphasize my true gratitude to our dedicated teams across our organization.

Our industry has faced many challenges since the pandemic emerged and our teams have never wavered from their passion and dedication to serve our customers and communities.

Any trends cultures, becoming stronger every day.

And the mood of our culture is our people.

Especially to our internal teams and vendor partners for making Citi trends sought after brand experience for our loyal and growing African American Latinx families apparel accessories and home lifestyle needs at prices that will never break the bank.

Our journey has just begun we have a long runway ahead of us as we gear up to expand the Citi trends experience just so many more communities associates and business partners.

Now, let me discuss the key highlights of our second quarter performance compared to the second quarter of 2019.

Total sales increased positive 29, 8% versus Q2 2019 supported by an increase in comp sales of positive 25, 6% versus Q2 2019.

Our strong top line increase was the result of growth in our average basket size driven by spending as we have seen for the last five quarters from longtime loyalists.

Lapsed comebacks and many new customers in.

In fact, our customers are in better financial position, which we expect will continue his employment levels rise and the economy continues to improve.

We are once again very encouraged by the broad based strength across our cities or categories. In fact, we registered strong double digit growth versus 2019 across five of our six cities, including ladies mens sure.

Beauty and accessories and home lifestyle.

Our buying planning and allocation teams are truly trend masters.

Amazing skills in developing proprietary assortments.

Having relationships with sought after brands and scouring the landscape for great values.

Central to our performance and momentum is our unwavering confidence in the power of our physical stores and underserved communities that really need us.

The quarter, we paid close attention to enhancing our unique specialty value store experience by putting our customers at the center of decision, making tailored to their needs and desires.

As Pam will describe in greater detail, we registered strong results in the middle of the P&L, resulting in significant growth in our gross.

And operating margins as well as continued expense leverage.

These results, despite macro freight and labor headwinds heading into the quarter.

In fact that our operating margin expanded nearly 700 basis points in the second quarter compared to Q2 2019 showcases the diversity and adaptability of our operating model.

Earnings per diluted share of $1.36 far exceeded our beginning of period internal expectations.

This was another well executed high performance quarter for Citi trends.

And the momentum from Q2 is carried into August with a great start to our back to school and back to dorm seasons.

Previously provided ranges.

Our revised outlook now calls for mid point total sales of $1 billion.

Which will have us reaching our previously shared long range top line target more than a year earlier than planned.

Importantly, the base foundation of our business has improved.

Fueled by improved and expanded trend right assortments, resulting in higher spend per customer, which we believe is sustainable over time.

The Citi trends transformation you got it.

Year path for many years, but meaningful growth.

With that I will turn to Pam.

Our CFO, who will provide more details Dan.

Thank you David and good morning, everyone.

As David mentioned this was another well executed quarter. We are very pleased with our first half results and the continued momentum we are experiencing thus far in the third quarter.

I would also like to Echo David's comments and express appreciation to our incredible team and what has remained a fluid environment. We delivered a stellar first half results and we could have not done have done so without the hard work and dedication of our associates.

Accelerated growth rate has challenged our teams, but all have risen to the occasion and have continued to excel in their performance.

Four hours and closures abated rent and other COVID-19 cost credits.

Before I get into the details of the financial So let me address the topic of supply chain, which is under a move operational pillar between our buy and sell pillars.

As we mentioned on our last call with our outsized performance, we ran into some bottlenecks getting plenty of available product through our D C and into our stores fast enough in Q1 to meet customer demand.

We moved quickly to address those bottlenecks and ramped up our drop ship capabilities to meaningfully expand our ability to move goods to stores.

By tackling the expected supply chain headwinds and implementing strategies to mitigate costs, while more efficiently lowering our product I'm pleased to report that our freight costs came in better than we expected in the second quarter.

Availability of high quality goods remains plentiful and our ability to move the goods throughout our network has meaningfully improved positioning us well for the fall and holiday selling season.

Now, let me turn to the review of our results.

Total sales in the second quarter were $237.3 million and increased 29, 8% compared to 2019.

Comp sales grew 25, 6% on a two year basis.

Growth in the quarter was driven primarily by a healthy increase in the average unit retail selling price as well as higher units per transaction, resulting in strong growth in the average basket size.

Sales were consistently strong throughout the quarter.

We achieved gross margin in a quarter of 48% an increase of 350 basis points.

<unk> to 37, 3% in the <unk>.

Second quarter of 2019.

The increase in our quarterly gross margin rate continued to be primarily the result of strong full price selling and fewer markdowns.

SG&A leveraged 270 basis points versus 2019 to 31, 8%.

This strong sales growth and disciplined expense control.

Operating income of $16.4 million compared $2.2 million of operating income in the second quarter of 2019.

Our net income was $12.5 million for the quarter compared to net income of <unk> $4 million in the second quarter of 2019.

Earnings per diluted share was $1.36.

Compared to three cents per share in the second quarter of 2019.

Turning to inventory compared to the second quarter of 2019 total ending inventory decreased 14, 3% on a.

Total sales increase of 29, 8%.

We experienced improved inventory turns for the second quarter, and our inventory freshness increased to record level.

Lastly, the company repurchased approximately 215000 shares of its common stock at an aggregate cost of approximately $18.9 million in the second quarter.

We ended the quarter with approximately $29 million remaining on the buyback authorization announced on June 2nd 2021.

In addition, today, we announced in our press release that our board of directors has authorized an additional $30 million share repurchase.

Turning to our fiscal 2021 outlook.

We feel great by the momentum in our business, including our strong start to our back to school and back to dorm season.

We continue to operate at a high level of growth we are confident in our ability to capitalize on the opportunities that lie ahead in the second half of the fiscal year.

Therefore, raising our guidance.

Specifically, we now expect to generate total sales of $990 million to 1 billion.

Billion.

A midpoint increase of approximately 28% compared to fiscal 2019.

This would result in expected earnings per diluted share in the range of six.

Dollars 30 to $6.50 for a midpoint increase of 354%.

<unk> 2019.

Within this guidance, we expect that our gross margin will be in the high 30 to low 40, consistent with previous guidance.

I will now turn the call back to David for closing comments.

Thanks Pam.

As a result of our accomplishments and momentum we are hard at work evolving our city Master plan.

Plan that will build on what we have shared in the past.

Finally positioning should be trends as a purpose led growth plan and a vital one stock trend shop for underserved African American Latinx communities.

We will provide more specific targets in conjunction with the unveiling of our revised to be Master plan at the ICR conference in January of 2022.

Also we will continue to partner with our board of directors in the process of building out our go forward capital allocation plan and look forward to updating you on our progress.

Assured the entire Citi trends leadership team, along with each and every city team member.

Full of passion that has the expertise to build our future one brick at a time.

I will now briefly reiterate and update you on our four very active strategic growth initiatives that will drive continued accelerated sales and earnings growth.

As a reminder.

Number one growing our fleet and expanding our customer base number two optimizing our product mix number three reinvesting in our infrastructure and then before making a difference within the communities we serve.

Growing our fleet and expanding our customer base our site.

On a fleet potential thousands of stores.

90% growth from where we are today we.

We see a tremendous opportunity to grow to grow both within existing dnas and entering new DMA is over time.

Our growth will remain focused on three distinct types of neighborhoods.

Can American centric neighborhoods.

<unk> Park or a mix of African American Latinx populations, then Latin tech centric.

A key driver of fleet growth will be the rollout of our new CTX customer experience in 2022.

As mentioned during our Q1 call. We launched two large stores designed to represent a testing ground amplifiers and takes our intimate specialty value store experience to the next level.

We added two more lab stores during the early portion of Q2.

And after rigorous testing and analysis, we are extremely pleased with the results thus far.

Customer and associate feedback has been outstanding and we look forward to scaling CTX in 2022.

It's so exciting to bring to life in more compelling ways never before our exclusive trends.

After brands and head to toe looks.

Making it a more special shopping experience for our existing and new customers.

Lastly, we remain on track to approximately opened 30, new stores and 20 Remodels in 2021.

Our forward plan calls for opening at least 100, new stores and remodeling of at least 150 stores from 2021 through 2023.

We're confident we can meet and possibly exceed these goals.

Next up.

Optimizing our product mix at the root of our transformation at Citi trends is our constant optimization of the basics fashion trends that allow our customer to show up and be seen while not breaking the bank.

This transformation is anchored on a new contract with six cities or categories with each senior buyer, assuming the role of the mayor of their respective city.

Being responsible for bringing that city to life.

Ongoing product mix optimization speaks to our responsibility to our customers to calibrate existing assortments tailored to their needs.

Adding new incremental businesses into our highly fungible store model.

With our unit inventory down considerably and has presented opportunities to clean up the selling floor move fixtures and free up space to further optimize our offerings to our customers.

Our city mayors are staying close to their respective customers partnering with resourceful vendors.

To provide unique assortments that are on trend.

<unk> data analytics to test learn and build new opportunities to further grow our sales productivity.

Drive improve inventory returns and maintain healthy gross margins.

Third reinvesting in our infrastructure.

As I have addressed in the past we are keenly focused on utilizing a portion of our free cash flow to strategically reinvest in our infrastructure and systems across our bi.

Move and sell pillars of our operation.

In light of the supply chain challenges mentioned earlier, we are embarking on some investment to improve our move processing capabilities.

We have more good work in front of us.

But we're moving in the right direction.

We're also on track in our planning of investments for our buy and sell pillars.

Rounded in implementing solutions that will leverage powerful data to produce enhanced insights and actions on income.

The prudent investments in these areas will contribute directly to the continued transformation of our business model.

I'll provide more detailed as this develops.

Lastly, making a difference within the communities we serve.

More than ever our presence.

Our stores serve as an informal neighborhood hub or store managers and team members know customers by name.

Take a genuine interest in not only styling our customers, but also listening to their stores and being part of the fabric of the local culture.

City carriers counsel, along with our board of directors are committed to establishing additional footholds in our communities.

As the lens of D R.

And corporate social responsibility, which includes ESG.

A great example of how we made a difference during Q2.

Together, we are offering valuable curriculum to help all applicants and our black history makers program.

To meet the winners as exciting as it was inspirational.

Our diverse and inclusive team and culture.

This was another well executed quarter for Citi trends, our transformation remains well underway and our updated guidance is a clear indication that we are confident in the momentum we are seeing in the business as well as our outlook for the balance of the year.

I will end with a shout out to our employees and leadership team for their hard work.

And unwavering dedication to all things city.

We are thankful for our loyal and customer excuse me, our loyal and growing customer base. We will continue to mask up in stores and take great care in prioritizing the health and safety of our associates and customers.

For joining us today.

We really appreciate your interest in this exciting close stores.

We are now ready to take your questions.

Thank you, ladies and gentlemen on the phone lines. If you would like to register a question. Please press. The one followed by the four on your telephone you will hear a three ton pump technology request. If your question has been answered and you would like to withdraw your gestation. Please press the one followed by the three.

Once again, ladies and gentlemen, it is one four if you have a question.

Our first question is from the line of Chuck Grom with Gordon Haskett. Please go ahead. Your line is open.

Hey, guys. Good morning, nice results here.

Well, Dave the bigger picture your sales per square foot the share is going to be around.

50 Bucks, if you hit the $1 billion in sales target that you outlined today, which is obviously great improvement from 2020, but it's still below a lot of your peers.

Your off price peers in particular.

When you think about the model and the opportunity on this but I'm. Just wondering if you could think of help us think about where you think that sales per square foot can grow over the coming years.

Hey, Chuck Thanks, a lot for the kind words and good question sure let me take a stab at it.

Start with our average sales per store has grown considerably versus 2019 up from about roughly one Florida just side, we'll do a kind of a $1 seven number for fiscal 2021.

And that points to the improved sales per square foot relative to our model, where we plan on kind of pushing is how do we get the most productivity out of each box and so I think relative to how we price our goods at a value price and the velocity of units that goes through our box, we anticipate going north.

That's a number you quoted.

I think it's all going to come down to in part rolling out our CTX experience that I mentioned, where we've done that in the lab stores its really been our testing ground to.

A few months and remainder of the year, we're continually tweaking that formula that lab store formula and that's what we'll begin to roll out next year. So I think as we remodel and open new stores at higher productivity rates.

We'll go north of that number you quoted.

I think it should be really accretive to the overall business and as you and I have spoken in the past the opportunity to have a lot of flow through from those additional topline sales and higher sales per square foot is barge since we don't have to add a lot of staff to our stores to serve service that additional sales that makes.

Sense.

Yes. It does I guess, it's probably a little too early to get some of the color on CTX I presume in terms of what the lift is or what the productivity is within those handful of stores that you've done so far.

Yes, it's a little early.

But what.

What I would say is the <unk>.

Travel and safety withstanding love to show it to you.

And what we need to walk folks through that experience we've got a.

A couple of that are reachable in the in the northeast a couple down south and I think.

I think what we're going to do is just continue to read it in during our Q3 call Q3 call. We'll give you another update.

Less promotional activity out there just curious your views on the strategy and if you guys would also look to take prices up in certain areas if need be.

Yes, it's a good question Chuck.

A highlight there as we remain steadfast that offering the same value that we've always been known for so <unk>.

<unk> sort of macro context, we are not aggressively raising prices I think.

Better fabrications, a better hand.

Fits and and we're finding that our customer will will pay a fair value for those goods. So like for like product, we're not raising prices.

But we're definitely are continually hunting down right trends in the right of that right sort of trends value quotient that enables us to charge a fair price and it's helping our our AUR inch upwards, which is which is a good thing contributing towards our higher basket and the higher sales.

That's great and.

And then last one for me would just be for Pam you talked about how some of the supply chain bottlenecks.

Were pretty significant in the second quarter and it seems.

It seems like the outlook for the back half is improving a little bit just I don't want to put words in your mouth, but maybe if you could just sort of flush that out for us what's improved.

Look.

On that front thanks.

Yes, good question Chuck.

We mentioned in the first quarter call.

We saw the headwinds began in the last month of the first quarter and then continue.

For the rest of the year is the impact.

As mentioned on our last call, we had expected that to be pretty significant but we weren't accepting that and we were looking for ways to mitigate that cost.

One of the ways that we were able to jump right on immediately was increasing our drop ship program.

And by ramping that up.

That's not only a place for cost, but it plays with speed and with speed the product gets to the stores sooner and it gets to the floor sooner, meaning that customers have access to it immediately to the most recent trends and so that all around has been a win for us not just on the free.

Headwind perspective.

And we expect that that will continue for the rest of the year as we continue to look at that.

Ramping that up even more but also looking at other ways to mitigate the external macro headwinds that we're seeing.

Got it thanks, a lot guys. Good luck.

Thanks Chuck.

Thank you. Our next question is from the line of Dana Telsey with Telsey Advisory Group. Please go ahead. Your line is open.

Congratulations everyone on the terrific performance couple.

A couple of things as you think about the complexion of the comp how did the basket do how did the transactions do and did you see anything post the child tax credit as compared to <unk>.

Yeah. So overall the primary increase in our.

Sales came from the basket side, so we're seeing a very healthy balance of both.

The AUR and the <unk> increase overall and so from that perspective, we think that that will continue into <unk>.

The fall is that that's something we've been seeing consistently for the first quarter.

Got it and I think Tim you talked about the freight impact on the gross margin would be around 170 to 190 basis points are you still seeing that or is there any adjustment to that.

Yes, we've certainly seen that moderate and as I mentioned in the answer to Chuck's question.

We were able to claw back some of that in the second quarter based on implementation.

Ramping up of our drop ship program. So absolutely we are seeing the 170 to 190 moderate down we're.

We're not being specific on the exact amount, but it's.

Probably.

Probably I'll say.

<unk> to 70 basis points better than what we expected in the 170 to 190.

Thanks, Dan and thanks for the kind words at the beginning as well yes.

<unk> is showing us some incredible things about the brand.

A couple of them are first off.

The change in the buyer and the general tenor in the store is dramatic.

We start with an entire new entirely new palette of colors, we allow the merchandise to frankly be more front and center against a more muted palette of background colors.

Change the entire floor layouts. So it's really kind of a nice play on changing adjacencies, allowing the customer to do a bit more ping pong around the store, meaning they can kind of bounce from an apparel and non apparel item. They can even meet up with an unexpected home item within.

The apparel section.

And so on so it's really I have to tell you a re imagination of the.

Citi trends store, and which resulted as the associates feel really proud to go to work every day they feel.

Powered to put outfits together, because we've created fixtures that.

And frankly make it kind of more fun to put together a top to bottom in the handbag.

They are from the community they know people who come through the doors almost every one of them and so they're now so proud to shop. The store. The customer then starts having the cell phone moment and starts calling people. So we're just seeing this great energy coming out of it frankly, all the way all the way through to a new music selection.

So it's been really a top to bottom front to back door.

Re imagination of the experience so as we look forward to the second portion of your question.

Very much a part of our remodel plans I mean theres no question. So as we enter and do deals, which you can imagine we're doing now for 2022 for both new stores and remodeled stores.

Well order and stuff were relaying stores out in or.

Figuring out how to roll it out.

It's an exciting time at Citi trends and so I think that's part of our kind of a momentum comment and confidence comment as we look forward because I think we've got something pretty good here with this re imagine experience.

Got it and then anything for holiday that we should note planning this year as compared to last year income.

And it will be what we should be thinking about.

I think a great question about Q4, one of my favorite seasons.

Can you try and started reinventing how they approached holiday effective with Q4 dollars 19, and it represented a really good quarter and as you know we had a great quarter last year.

By really amping up the gift quotient within our stores and this year is going to be a bigger and better than ever so I would underline the word gifts.

We're feeling we're feeling good but youll see bright shiny fluffy.

Smell good gifts throughout the front of the store and we'll make sure their associates or are ready to serve them with with.

No doubt no doubt will be a nice influx of.

Holiday shoppers.

Congratulations. Thank you, thanks, Dan and have a great one.

Okay.

Thank you, ladies and gentlemen, once again as a reminder, it is one four if you have a question.

Once again that is one for our next question is from Jeremy Hamblin with Craig Hallum. Please go ahead. Your line is open.

Thanks, and I'll add my congratulations on the impressive performance.

Wanted to see if we could get a little more granular on the gross margin Pam.

Pam you noted about 350 basis points of improvement versus 2019 levels I was hoping that you could put some context around that the component parts in breaking down your product margin improvement.

Occupancy leverage and then maybe offset by how freight compared in Q2 versus 2019.

Sure Hi, Jeremy and thank you for your comments.

No.

We don't include occupancy in our in our gross margin number.

And that we're reporting so the the main drivers of the benefit here.

The initial markup the markdown.

And a little bit of strength offset by.

The freight headwinds that we've talked about.

And so when I look at you know the majority of that I think I think about the lower inventory levels, which are driving lower markdowns and lower shrink number.

And but certainly we are seeing good initial markup.

We continue to increase our AUR.

Just having better trends as David mentioned that product mix overall and seeing that.

The selling.

Right. So I think overall there.

Those are the main components of the of the gross profit increase.

Okay.

And then I was hoping that you might be able to provide a little more granularity around.

Recent trends in terms of whether or not you've seen a positive impact since the child tax credit advance payments.

In mid July have you seen a recent.

Improvement in trends over the last let's call it four weeks.

Any additional color that you might be able to share on that.

Sure I think.

Dave.

Immediately following the first DTC in July.

We did see an uptick but what we also.

During.

At that time period, where the later back to school and so when you dissect that the additional to that.

Sam.

The CTC.

<unk>.

Optimized product mix.

Withstanding, it's hard to figure out what what is what in that so.

What I will say it wasn't as material as I think some of the other stimulus programs have been but we certainly did see some uptick.

But hard to dissect exactly what that was worth.

Right and I think the increased snap benefits doesn't start until October one so that that element too.

So I also wanted to understand some of the regional performance.

And I think.

A lot of the growth towards a 1000 units.

Going to come in.

Less developed markets, whether it's California, or particularly in the northeast as well.

Where it seems like there's some tremendous opportunity I know.

As previously been a little skepticism about how those markets might perform so I was hoping that you could.

Provide a little more color David on.

No.

Markets in the northeast or California, how the AUC.

These are performing.

Overall relative to the Euro base.

Hey, Jeremy yes, good. Thank you good question.

So first off from a new store growth perspective, we are going to in the foreseeable future, let's called it. The next 18 months be focused on both densify current markets as well as entering very sparsely or not yet populated by Citi trends store markets to your point New Jersey.

Closer rings through a bigger city markets.

Are working hard and fast and now what I can share with you is our performance over the last couple of quarters has been fairly outsized too. So all of our geographies, but what's interesting is the Californian market, which I can cite better than New York since we don't have a lot of stores in New York is they've come on really really strong and what's really incur.

<unk> about that as a lot of those stores are <unk>.

And nature of those are latinx centric stores.

We've seen an incredible new customer capture in those stores.

Citi trends nameplate.

Im excited about that.

Some good things on the in the tea leaves there does that help.

Yes sure does.

And then last one from my for me here is.

You noted your guidance is put you on track for <unk> and kind of that one SEC.

$7 million range really.

Very impressive.

That includes Q1, where you had some pretty extraordinary results.

Obviously, we're not going to Oh.

At least I don't think we're going to have the same type of stimulus money available in Q1 next year.

In terms of that $1.7 million AUC Mark would you expect at this point to see that grow.

22, now that Youre kind of hitting the three year Mark early in terms of your sales and profitability.

Good insights with your question look I think we looked at it this way Jeremy without referring to any specific 2022 detail, which we're not able to share at this rate as we look at things today.

We as a team and say to ourselves we've got to comp the comp. If you will that's a number one job right the SEC.

Thing is that we have really good indicators through surveys that we've done over the last couple of months that suggest we've captured an extraordinary amount of new customers and a bunch of lapsed comebacks people that were formerly a traded that have come back to the brand.

And it's our job to maintain their loyalty and visitation rate and purchased right through our stores and our stores. So I think it comes down to people.

Keeping the relationship moving with those folks it's been a really big focus of ours to make sure our store managers and our teams in the field.

Paying attention to the movies that are coming through their doors or folks that haven't seen in a while and it's our job to to keep them in the fold right. So.

That's that's what we're really focused on is developing as I mentioned in the talk.

Talk today this.

Kind of purpose led brand.

Ultra and drive to execute really really well here's our belief our belief is if we continue to deliver improved and enhanced on trend assortments at great values, those new customers and lapsed come back customers will stay on the phone.

And that's our job ultimately so.

We'll continue to update you and as I said will bring forth some of the.

Additional details at the January ICR conference.

The time being we're focused on building right assortments.

Rolling out that CTX experienced in many many markets through either new store or a remodeled stores.

And we believe that will mean, good things to continue a positive run rate and our average sales per store.

Thanks for the color best wishes.

Thanks, Jeremy have a great day, thank you Sir.

Thank you. Our next question is from the line of John Lawrence with Benchmark. Please go ahead. Your line is open.

Thank you congratulations David.

Thank you John good to hear you.

Yeah. Thanks, just a couple of questions and sort of bigger picture questions.

Some of the previously asked but okay.

Can you go back in when you started and came to Citi trends.

If you looked at the assortment pilot.

You looked at all of our growth opportunities.

So a lot more vendors and probably before your arrival.

Can you talk about that process and what the pandemic has done to those relationships as you try to.

Sort of convert new vendors.

On to the floor.

Great question, John about our evolution of our assortment, which one could argue matters. The most right. We our job is to work back from the customer and deliver trends in assortments within all of our cities that resonate with them in and do it in a way that we continue to offer newness and freshness. So.

I would tell you that the journey from last April to now has been really eye opening for our teams. So I'll give a shout out to our bi team.

Lisa and her team have really done an amazing job at not only strengthening relationships with current vendor partners, but also opening up many many new ones.

And it's been all about really figuring it out.

For example layer of the man city, how can I buy your understand my Guy what does that guidance, we want based on its size is life stage.

<unk>.

Adult.

Millennial parent nonparents all of the above and we really rounded out our our sort of our ecosystem of vendors that can serve all of those different constituencies. In my example on the men's world and we've done that really in all of our cities in the box.

It's been great to watch.

We've got to stay on your toes and keep on moving and never never rest on your laurels and I think we have a.

A humble.

And action oriented team.

Test and learn their way too.

To the right solutions for our customers and that's what it's all about so.

As I said in the call thinking our vendor partners is something we do all the time.

We wouldn't be here without them.

And they really are running the belt.

I think their business and our business has grown.

And we're excited to see it grow in the months and years ahead.

Great Thanks for that.

And when you talk about the cities how much how much different.

As you continue to acquire information and data about this customer is a new Jersey store versus a California store in terms of assortment.

It's a good question John in terms of geographical differences.

Today.

I would tell you that.

Tonnage of the box is very similar and that makes the business a little easier to operate and it works, it's been working and we don't continue to.

We won't step off that pedal at all however, I think the opportunity looking forward is to just continue to deteriorate and and figure out to your point the differences between a Newark.

Newark, New Jersey customer at.

Hawthorne outside of ally customer.

And there will be differences of 100% and that's where those as ive showcase a little bit in our previous materials, that's where those three tranches of customers come into play.

Is the store African American centric what percent of the box should be a little tweaked for them is the store a melting pot store same answer how do we treat that for a combo of Latinx and African American customers and then lastly, the latinx centric store how do we.

Dial it up for their tastes and preferences. So that's something that we're going to evolve to over time as you know we have long festival stores in each of those buckets, but.

Our aim is to continue to make them more productive through the right product assortments delivered their tastes and preferences.

Great. Thanks for the insight.

So good luck.

Thanks, John have a great day.

Thank you and there are no further questions on the phone lines I'll pass it back to the speakers.

Thanks, everybody for tuning in today, we'll see at the next call stays safe and healthy Bye bye.

Thank you, ladies and gentlemen that does conclude today's call. We thank you for your participation and ask that you. Please disconnect your lines have a good day.

Q2 2021 Citi Trends Inc Earnings Call

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